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(UPDATED) Citadel Punks Blackstone

"What is to give light must endure burning." - Viktor Frankl “The backbone of surprise is fusing speed with secrecy.” – Carl von Clausewitz Why is it coming out now, apparently months after the talks took place, that Blackstone inquired about buying a stake in Citadel? There are a few reasons we can think of for monetizing coveted equity - or, at least showing enough leg to solicit an updated "mark" on the assets - but, the most likely one has been the same for years: Ken wants to become an investment bank. Ok, so what does Citadel need to become an investment bank that it doesn't already have? Well, given leadership - and, occasional dominance - in listed equity-linked markets by Citadel, the next beachhead for investment banks-in-training is fixed income. And, Citadel-like prowess in fixed income may require lots of technology and smart folk, but the one thing it definitely needs is balance sheet. The next question, then, is: Do you build a balance sheet or buy a [...]

By |2020-10-14T22:33:36-04:00October 17th, 2019|For Subscribers|
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A Brawl Breaks Out in the Futures Market – Part 2

"You can't connect the dots looking forward, you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future." - Steve Jobs   It's truly amazing what we find deep down in the weeds... The solution to any puzzle starts with the pieces that are easiest to fit into place. Translation: Solutions can start most easily where the most granular data is readily available and easiest to interpret. In this case, and though not (yet) flowing smoothly from a firehose, that means regulatory disclosures based on long positions reported by various trading and asset management firms that correspond with the quarterly-updated 13F securities list managed by the Securities and Exchanges Commission (SEC). At Alphacution, the core mission is to solve, and keep re-solving, a very large puzzle made up of many other smaller puzzles which, themselves, may contain even smaller, more detailed puzzles... Think of this like the claim made by the Kirk Lazarus character in the movie, Tropic Thunder - [...]

By |2020-10-14T22:40:14-04:00October 11th, 2019|For Subscribers|
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Tradebot Systems: There’s Still Room Under the Radar

"Great things are done by a series of small things brought together." - Vincent Van Gogh In late 2001, $1.1 million in member contributed capital is dropped into Northtown Trading, LLC. By 2005, this operation becomes Tradebot Systems, Inc. and the rest has become a notable component of  high-frequency trading history - and mythology. In comparison to much of our other modeling, we don't know much about Tradebot. However, given the contextual evidence provided by that other modeling, we can leverage the data we do have on Tradebot much further than we'd otherwise be able to. For the trained eye, the exhibit below - wherein Alphacution presents the total assets and a summation of cash and net receivables found in Form X17A5 for the years beginning 2001 and ending 2018 - shows that this trading operation is mostly holding cash and receivables from brokers. This means that they're position exposure is limited, which further means that they are trading fast enough - and small enough - to be (mostly) flat [...]

By |2020-10-14T22:42:13-04:00October 3rd, 2019|For Subscribers|
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DRW, Jump: A Brawl Breaks Out in the Futures Market

“All profound distraction opens certain doors. You have to allow yourself to be distracted when you are unable to concentrate.” - Julio Cortázar Sometimes we are working one research project, get a call and then need to go chase a squirrel that is part of a different research project. This is one of those squirrels... And as such, it's a chart that causes a reaction - but, we're not ready to say precisely what our reaction is (title and title image to this post notwithstanding), nor what that might mean. So - like many teasers - we're going to drop it here for now, and then follow up later, except for this: Significant growth in assets is not necessarily indicative of a corresponding increase in profitability, but there may be advantages as a result of scale. Let's see if we can make a stronger case, one way or another, and then come back with that... BTW, the dotted lines signify missing reports...

By |2020-10-14T22:46:50-04:00October 2nd, 2019|For Subscribers|
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Goldman Sachs and the Long Arc of Hull Trading

"And the men who hold high places - should be the ones who start - to mold a new reality - closer to the heart." - Rush, "Farewell to Kings" Strap yourself in for this one, as we take a fascinating and detailed walk through some of Alphacution's recent modeling on one of the long-standing Kings of Wall Street; a story that is on the one hand, not widely known and on the other, not typically spoken of... It was among the most exciting one-two punches of financial markets deals from the late 1990's and very early 2000's; one where Wall Street - much like other financial centers across Europe had done in prior years - had reached out, once again, to LaSalle Street for their unique prowess in derivatives trading. (Alphacution detailed the roster of leading players who were part of this wave of acquisitions in a Feed post focused on Susquehanna International Group - SIG.) In this case, the mighty Goldman Sachs had reached out to acquire Blair [...]

By |2020-10-14T22:45:13-04:00September 26th, 2019|For Subscribers|
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Adding J. P. Morgan Securities to Bank-Owned Broker-Dealer Modeling

"The world is changing, and we recognize that a synergistic combination might be in the best interest of shareholders..." - James E. Cayne Alphacution has modeled the bank-owned broker-dealer operations for the following: Goldman Sachs & Co. Morgan Stanley & Co. Deutsche Bank Securities, Inc. UBS Securities, LLC Credit Suisse Securities (USA), LLC We now add J. P. Morgan Securities, LLC - formerly known as Bear Stearns & Co... Here's a brief summary of what that analysis shows, so far: Relative to the other five bank-owned broker dealers in our sample to date, J. P Morgan Securities ranks as the largest by total assets, as of year-end 2018: Relative to the other five bank-owned broker dealers in our sample to date, J. P Morgan Securities also ranks as the largest by a measure of gross cash equities - as in, equity securities owned plus equity securities sold, but not yet purchased - as of year-end 2018: Relative to the other five bank-owned broker dealers in our sample to date, J. [...]

By |2020-10-14T22:48:23-04:00September 25th, 2019|For Subscribers|
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(UPDATED) Two Sigma Investments: How To Build A Nested Alpha Strategy Architecture

"Education is all a matter of building bridges." - Ralph Ellison How trading firms, hedge funds and asset managers scale - as in, scale assets under management (AUM) or proprietary capital, headcount, data, technologies, and other operational ingredients to support a growing mix of market strategies when their initial market strategies reach boundaries of performance, liquidity, inventory or competitive challenges - is a significant point of fascination here at Alphacution. This is because scaling - real, sustainable scaling - requires simultaneous and interdependent success in both operational and trading strategies. Scaling also becomes a critical issue to measure and monitor from a market macrostructure perspective if you believe the hypothesis that the capacity of alpha is finite, as we introduced in the Feed post, "The Privatization of Alpha." Because if you believe that there are no constraints on the capacity of outperformance - or, "alpha" - then there is no need to pay attention to how various asset managers scale their strategies and their overall businesses. In this scenario, there [...]

By |2020-12-01T19:54:05-05:00September 18th, 2019|For Subscribers|
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Now Wrapped in Pedagogy – Wolverine Trading’s Book: Hiding in Plain Sight

“Not I, not any one else can travel that road for you. You must travel it for yourself.” ― Walt Whitman “The teacher is of course an artist, but being an artist does not mean that he or she can make the profile, can shape the students. What an educator does in teaching is to make it possible for the students to become themselves.” ― Paulo Freire We return to this post, "Wolverine Trading's Book: Hiding in Plain Sight," so soon after it was originally published, to make a critical point. Moreover, the timing of this exercise is particularly relevant given the catalyst that Alphacution was recently - and, to be fair, ever so politely - judged as lacking the level of insightfulness necessary to win an engagement that should have already been in the bag. (It ain't cash 'til it's cash...) Inherently configured as one who is typically long the challenges and short the easy road, and therefore game to make an appeal for what will eventually turn out to be [...]

By |2020-10-05T16:57:45-04:00September 11th, 2019|For Subscribers|
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Wolverine Trading’s Book: Hiding in Plain Sight

"Study the science of art. Study the art of science. Develop your senses. Especially learn how to see. Realize that everything connects to everything else.” - Leonardo da Vinci With this one, we're just going to let the visuals speak for themselves, for now - and see how that goes... I lied... Except for this: We have modeled all the 13F reports we could find on Wolverine entities. With the recent post on Jump Trading in mind, notice anything missing?

By |2020-10-05T16:59:14-04:00September 5th, 2019|For Subscribers|
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Throwing in the Towel on US Equities? UBS or Credit Suisse Could Be Next…

“Turning points in human consciousness occur when new energy regimes converge with new communications revolutions, creating new economic eras.” – Jeremy Rifkin Like watching a movie in slow motion, this week Alphacution adds some incremental modeling on UBS and Credit Suisse to its recent analysis on bank-owned broker-dealers.  We start with this metaphor to emphasize the caveat that anything observed in slow motion may be prone to some illusion. So, this opening is simply fair warning - and a grain of salt. Also, for those of you who are new to the thread and want to catch up, we started with "Remembering Deutsche Bank: A Market Macro-Structure Canary?" and then followed with "Goldman, Morgan and Deutsche: Comparing Bank-Owned Broker-Dealers in Equities." Both are worth a read... (The rest of us will wait here while you do so.) Anyway, if we were to take Deutsche Bank Securities, Inc. (DBSI) as a guide, wherein 18-year lows of measures like gross cash equities - which is the sum of equities owned and equities "sold [...]

By |2020-10-05T17:02:43-04:00August 28th, 2019|For Subscribers|
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